Corporate pensions face largest monthly loss of 2017 in August

Milliman today released the results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans. In August, the funded status of these plans fell by $17 billion—the largest loss year-to-date—due to a decrease in the benchmark corporate bond interest rates used to value pension liabilities. The Milliman 100 PFI plans saw their deficit swell from $281 billion as of July 31 to $298 billion at the end of August. The funded ratio dropped from 83.8% to 83.0% over the same time period, and is now below where it was at the beginning of 2017 for the first time this year.

The funded ratio for the Milliman 100 plans continues to teeter up and down during 2017, and now we find it below the mark set at the beginning of the year. It will be interesting to see how discount rates will change over the next few months and how the potential release of updated mortality tables will affect pension contributions and funded status going forward.

Looking forward, under an optimistic forecast with rising interest rates (reaching 3.80% by the end of 2017 and 4.40% by the end of 2018) and asset gains (11.0% annual returns), the funded ratio would climb to 87% by the end of 2017 and 100% by the end of 2018. Under a pessimistic forecast (3.40% discount rate at the end of 2017 and 2.80% by the end of 2018 and 3.0% annual returns), the funded ratio would decline to 81% by the end of 2017 and 74% by the end of 2018.